Jacobs v. Altorelli (In re Dewey & LeBoeuf LLP)

• Decision Date: 29 October 2014
• Docket Number: Adv. Proc. No. 14–01817 MG, Adv. Proc. No. 14–01795 MG, Adv. Proc. No. 14–01818 MG,Case No. 12–12321 MG,Adv. Proc. No. 14–01015 MG, Adv. Proc. No. 14–01797 MG, Adv. Proc. No. 13–01772 MG, Adv. Proc. No. 14–01794 MG
• Citation: 518 B.R. 766
• Parties: In re: Dewey & LeBoeuf LLP, et al., Debtor. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. John J. Altorelli, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. David R. Greene, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. L. Londell McMillan, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. Steven P. Otillar, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. Michael Steele, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. Ronald W. Zdrojeski, Defendant. Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff, v. Terrence Mahoney, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

518 B.R. 766

In re: Dewey & LeBoeuf LLP, et al., Debtor.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
John J. Altorelli, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
David R. Greene, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
L. Londell McMillan, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
Steven P. Otillar, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
Michael Steele, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
Ronald W. Zdrojeski, Defendant.

Alan M. Jacobs, as Liquidating Trustee of the Dewey & LeBoeuf Liquidation Trust, Plaintiff
v.
Terrence Mahoney, Defendant.

Case No. 12–12321 MG
Adv. Proc. No. 14–01015 MG
Adv. Proc. No. 14–01797 MG
Adv. Proc. No. 13–01772 MG
Adv. Proc. No. 14–01818 MG
Adv. Proc. No. 14–01795 MG
Adv. Proc. No. 14–01794 MG
Adv. Proc. No. 14–01817 MG

United States Bankruptcy Court, S.D. New York.

Signed October 29, 2014

518 B.R. 770

Attorneys for Alan M. Jacobs, Liquidating Trustee for the Dewey & LeBoeuf Liquidation Trust, Diamond McCarthy LLP, 909 Fannin Street, 15th Floor, Houston, Texas 77010, By: Christopher R. Murray, Esq.

Attorneys for Defendants John J. Altorelli,

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Shnader Harrison Segal & Lewis LLP, 650 California Street, 19th Floor, San Francisco, California 94108–2736, By: Paul Jasper, Esq. (Admitted pro hac vice), Shnader Harrison Segal & Lewis LLP, 140 Broadway, Suite 3100, New York, New York 10005, By: Michael Tamasco, Esq., DLA Piper LLP (US), 1251 Avenue of the Americas, New York, New York 10020–1104, By: Thomas Califano, Esq., Joshua A. Kane, Esq.

Attorneys for Defendant Michael Steele, McKenna Long & Aldridge LLP, 230 Park Avenue, Suite 1700, New York, New York 10169, By: Christopher F. Graham, Esq.

Attorneys for Defendants Ronald Zdrojeski and David R. Greene, Meister Seelig & Fein LLP, 125 Park Avenue, 7th Floor, New York, New York 10017, By: Christopher J. Major, Esq., The McMillan Firm, 29 W. 46th Street, 3rd Fl., New York, New York 10036, By: L. Londell McMillan, Esq., (pro se)

Attorneys for Steven P. Otillar, McGrail & Bensinger LLP, 676A Ninth Avenue, # 211, New York, New York 10036, By: David C. McGrail, Esq.

Attorneys for Terrence Mahoney, Nelson Kinder & Mosseau P.C., 2 Oliver Street, Boston, Massachusetts 02109, By: Richard Levine, Esq., Rich Michaelson Magaliff, Moser, LLP, 340 Madison Avenue, 19th Floor, New York, New York 10173, By: Howard P. Magaliff, Esq.

MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART CROSS–MOTIONS FOR PARTIAL SUMMARY JUDGMENT

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Before the Court are cross-motions for partial summary judgment in seven partially consolidated adversary proceedings filed by Alan M. Jacobs, as the Liquidating Trustee for the Dewey & LeBoeuf Liquidation Trust (the “Trustee”), seeking to claw back compensation paid to former partners (the “Defendants”) of Dewey & LeBoeuf LLP (“Dewey,” or the “Debtor”), a limited liability partnership (“LLP”) registered under the New York Partnership Law (“NYPL”), while the firm was allegedly insolvent before it filed for bankruptcy.¹ The cross-motions raise novel and complex issues regarding the application of fraudulent conveyance provisions section 548 of the Bankruptcy Code and section 277 of the New York Debtor and Creditor Law (“NYDCL”) to limited liability partners. The key question, ultimately, is whether the Defendants may assert affirmative defenses of “reasonably equivalent value” under the Bankruptcy Code or “fair consideration” under the NYDCL based on the value of the services the Defendants rendered on behalf of the firm.

The Court concludes below that the Defendants are entitled to summary judgment dismissing the Trustee's claims under section 548(b) of the Bankruptcy Code —while it may seem counterintuitive, Dewey must be treated as a “corporation” rather than as a “partnership” for purposes of the Bankruptcy Code so the Complaint fails to state a claim under section 548(b).

With regard to the Trustee's claims under section 548(a)(1)(B) of the Bankruptcy Code, which by its terms provides a defendant with a “reasonably equivalent value” defense, the Court grants summary judgment to the Trustee, declaring that services rendered by a partner pursuant to the partnership agreement do not constitute “value” that may be considered under a “reasonably equivalent value” defense. The Court also grants summary judgment to the Trustee on its section 548(a)(1)(B) claims determining that to the extent the

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challenged transfers to Defendants were made as returns of former partners' capital contributions, the transfers were not made on account of antecedent debts and therefore cannot be construed as “reasonably equivalent value” as a matter of law.

As to the Trustee's NYDCL claims, the Court concludes below that the Trustee is entitled to summary judgment declaring that section 277 of the NYDCL applies to a New York LLP such as Dewey and subdivision (a) of that section applies to limited liability partners of Dewey. As a result, the Court further concludes that the Defendants are precluded from asserting the “fair consideration” defense they raised in their motion to the Trustee's claw back claims to recover compensation paid under the partnership agreement while Dewey was insolvent. The only relevant inquiry on the NYDCL claims, then, is the date of Dewey's insolvency, an issue not yet resolved in these cases.

Therefore, as explained below, the Court GRANTS in part and DENIES in part each of the motions.

I. BACKGROUND

A. Dewey's Bankruptcy, the Adversary Proceedings, and the Cross–Motions

Dewey was a prestigious New York City-based law firm registered as a LLP under the NYPL. At its peak, more than 1,300 lawyers worked at the firm in numerous domestic and foreign offices. Hundreds of these lawyers—partners and associates alike—left the firm shortly before the firm collapsed. On May 29, 2012, Dewey filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. (Ch. 11 Case No. 12–12321, ECF Doc. # 1.)

Dewey's second amended plan of liquidation was confirmed on February 27, 2013 (the “Liquidation Plan” or “Plan,” Ch. 11 Case No. 12–12321, ECF Doc. # 1144). Jacobs was appointed as the Liquidating Trustee under the confirmed Plan. (Id. ) The Liquidation Plan included the Partner Contribution Settlement Agreements and Mutual Releases (the “PCP”), a settlement agreement between Dewey and more than 400 of roughly 670 former Dewey partners that was approved by the Court on October 9, 2012 following a contested hearing. See In re Dewey & LeBoeuf LLP, 478 B.R. 627, 632, 634 (Bankr.S.D.N.Y.2012). The PCP required participating partners to pay the Trustee a portion of the compensation the partners were previously paid by the firm. Id. at 632–34. Confirmation of Dewey's Liquidation Plan was a condition precedent to the effectiveness of the PCP. Id. at 642. Not all Dewey partners joined the PCP. Id. at 634. The Defendants in these adversary proceedings are among those that did not join the PCP, and the Trustee later filed these adversary proceedings against them in an effort to claw back payments Dewey made to these partners while Dewey was allegedly insolvent before filing for bankruptcy.

The Defendants have moved for partial summary judgment (“Defendants' Motion” or “Defs' Motion,” ECF Doc. # 16),² supported by a supplemental statement of undisputed facts (ECF Doc. # 19). The Trustee filed an opposition and cross-motion (“Trustee's Motion,” ECF Doc. # 21), supported by the Trustee's response to the

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Defendant's supplemental statement of undisputed facts (ECF Doc. # 22). The Defendants filed a reply on their motion and an opposition to the Trustee's Motion (“Defendants' Reply” or “Defs' Reply,” ECF Doc. # 28). The Trustee then filed a reply on his motion (“Trustee's Reply,” ECF Doc. # 30). The parties also signed a stipulation of undisputed material facts for purposes of these motions (“Stipulated Facts,” ECF Doc. # 18). The Court heard argument on the cross-motions on October 2, 2014.

The adversary proceedings subject to these cross-motions were partially consolidated for pretrial purposes. (See March 31, 2014 Order, ECF Doc. # 11.) At a pre-motion hearing on August 5, 2014, the Court agreed that the parties could file cross-motions for partial summary judgment limited to legal issues that are generally applicable in all of the adversary proceedings and based on facts common to most or all of the Defendants. (Aug. 5, 2014 Hearing Tr. 14:20–15:5, 21:15–21, 24:22–25:19, ECF Doc. # 14.) Any issues based on individualized facts are beyond the scope of these motions. (See id. ) The motions are based on legal issues arising out of distributions or payments made to the Defendants pursuant to the general terms of Dewey's partnership agreement. (Id....